Archive for July, 2009

The 5 Year ARM Hits A Low For The Year

The 5 Year arm dropped from 4.83 to 4.74 this week reaching a low for the year. What is interesting is that we have moved back to a normal state when comparing the 4 major mortgage products to each other. Earlier this year the 5 year arm fell below the 30 year fixed rate which is highly unusual. This basically made the five year arm pointless for borrowers. But with the drastic fall in the 5 year rate in the last few weeks we are now starting to see a normal relationship between the 5 year arm and the 30 year fixed rate.

Why is this happening? Its hard to know for sure but it might have to do with the risk of inflation. Earlier this year it seemed that banks were pushing up rates for the 5 year arm in part because they had lost so much money on arm related mortgages that they were not interested in making more of these loans with their associated high risk of foreclosure. But now with mortage rates at historical lows and inflation on the horizon the prospect of giving out loans with a 30 year term is probably less appealing. The prospect of giving out loans where the interest is only fixed for 5 years has some advantages. Below are rates for different mortgage products for the last few weeks and from January 8, 2009 (6 months ago)

Jul 23, 2009
30-yr 5.20 15-yr 4.68 5-yr ARM 4.74 1-yr ARM 4.77

Jul 16, 2009
30-yr 5.14 15-yr 4.63 5-yr ARM 4.83 1-yr ARM 4.76

Jul 09, 2009
30-yr 5.20 15-yr 4.69 5-yr ARM 4.82 1-yr ARM 4.82

Jul 02, 2009
30-yr 5.32 15-yr 4.77 5-yr ARM 4.88 1-yr ARM 4.94

Jun 25, 2009
30-yr 5.42 15-yr 4.87 5-yr ARM 4.99 1-yr ARM 4.93

Jan 08, 2009
30-yr 5.01 15-yr 4.62 5-yr ARM 5.49 1-yr ARM 4.95

Comparing today’s rates to rates from 6 months ago its interesting to look at the 30 year versus the 5 year arm. While the 30 year rate has risen from 5.01 to 5.20 in the last 6 months the 5 year arm has falled from 5.49 to 4.74 in the same time period. Using our mortgage calculator widget we calculated the mortgage payment for a 200k loan based on today’s rates and mortgage rates from 2 weeks ago and December

Jul 23
30-yr $1098.22
15-yr $1548.44
5-yr ARM $1042.08
1-yr ARM $1045.7

Jul 02
30-yr $1113.09
15-yr $1557.72
5-yr ARM $1059.02
1-yr ARM $1066.32

Jan 08
30-yr $1074.86
15-yr $1542.28
5-yr ARM $1134.32
1-yr ARM $1067.53

Looking at these numbers we see the same thing. Since January 8th the payment on a 200k loan with a 30 year fixed mortgage has risen by 2 percent but the mortgage for a 5 year arm has dropped by over 8 percent. I would still not recommend a five year arm in the current market in most circumstances. Since rates are likely to increase the difference (although large) is probably not worth locking in for 30 years unless one is sure they A) they plan on moving in less than 5 years and B) are confident they will be able to sell their house.

Ki works in Austin Texas. His site is a clearinghouse of information on Austin Texas real estate. It also provides different mortgage widgets including a mortgage calculator widget.

Details on the First Time Home Buyer Tax Credit

There is a provision in the Housing and Economic Recovery Act of 2008 that allows first time home buyers the ability to receive a credit on their taxes of up to $7,500 for purchasing a home. There is also a provision in the American Recovery and Reinvestment Act of 2009 that expands this tax credit for qualified first time home owners. The provision is called the first-time homebuyer credit.

The 2008 first-time homebuyer credit was created to infuse the slumping housing market, and is treated like an interest-free loan. Qualified participants were required to repay the loan interest-free over a period of 15 years, making 15 equal annual payments. You can find more details about this tax credit on the IRS website.

The provision in the American Recovery and Reinvestment Act of 2009 increased the first-time homebuyer tax credit to $8,000 for purchases made January 1 – November 30, 2009. In contrast to the 2008 tax credit, new home owners do not have to repay the credit as long as they do not sell their home within three years of closing on the home.

You need to be armed with the facts before you go to purchase a home on the assumption that you’ll receive the credit. The following FAQs will help you navigate through the quagmire of confusion that has surrounded this tax credit.

* Who is eligible? Taxpayers who have not owned a home within the U.S. three years prior to purchasing a new or resale home in the United States. The closing and transfer of title on the home must be completed between April 9 and December 31, 2008 for the 2008 credit, and between January 1, 2009 and November 30, 2009 for the 2009 credit.

* What is the amount of credit? The credit allows for 10 percent of the purchase price. The maximum credit is $7,500 for 2008 and $8,000 for 2009.

* Are there income limits? Income limits are $75,000 for a single filer and $150,000 for a couple filing jointly. The IRS bases the credit on your modified adjusted gross income (MAGI). Your MAGI equals your adjusted gross income (AGI) plus IRA contribution deductions, foreign housing deductions, student loan deductions, higher education expense deductions and foreign income. Partial credit is available to some with higher MAGI.

* Does my home qualify? The home qualifies if it is the taxpayer’s principal residence, is located within the U.S. and purchased between April 9, 2008 through July 1, 2009 for the 2008 tax credit, and January 1, 2008 through November 30, 2009 for the 2009 tax credit. For new construction, the date you actually occupy the residence will be considered the purchase date.

* What if I don’t owe taxes or I’m exempt from filing? It doesn’t matter. The credit applies to qualified applicants regardless of filing requirements, even to those who do not owe taxes or are exempt from filing. You may file solely to claim the first-time home buyer credit.

* How do I claim the credit? Although you are not required to claim the credit, you may do so by filing a Form 5405. You’ll need to file the form with the applicable 2008 or 2009 federal income tax return.

* Does the tax credit act as a tax deduction? No. A tax deduction only diminishes the amount of income taxed. For instance, if the taxpayer’s AGI is $40,000, then a deduction would reduce the amount taxed by $8,000, depending on the amount of applicable credit. The taxpayer would be taxed on the remaining amount of $32,000. Instead, the credit is directly deducted from what the taxpayer owes the government. If the taxpayer owes $2,000 to the IRS, then $6,000 would be the amount refunded to the taxpayer. If the taxpayer owes nothing, then the entire $8,000 would be refunded, depending on the applicable credit.

Ki has sold Austin real estate for almost 10 years. He works with a variety of buyers. His website offers listings directly from the Austin MLS. His site also has general information on Austin real estate and a mortgage widget to keep up to do on current trends with mortgage rates.

Mortgage Rates Fall For the Fourth Week in a Row

The 30 year mortgage rate fell from 5.32 to 5.20 this week. This marks the fourth week in a row where the 30 year rate has fallen. The rate is not at the all time lows we saw earlier this year. To put it in perspective that 30 year mortgage rate is currently 5.20 and the most recent high was 5.59 (on June 18th, 2009) and the all time low was 4.78 (on April 30th 2009). So mortgage rates are down but not back to their all time lows. Historically though rates are pretty low. In fact rates today are lower than anything we saw before 2009.

The other three major mortgage products fell as well. The 15 year rate dropped from 4.77 to 4.69, the 5 year arm dropped from 4.88 to 4.82 and the 1 year arm dropped from 4.94 to 4.82. I tend to concentrate on the 30 year rate. The other 3 major mortgage products are less important today because they remain relatively close to the 30 year rate. And with rates so low it doesn’t really make sense to get a slightly lower rate and only be locked in for 1 to 5 years instead of paying a slight premium to lock in for 30 years. Below are rates for the major mortgage products for the last few weeks and for December 31, 2008 (6 months ago).

Jul 09, 2009
30-yr 5.20 15-yr 4.69 5-yr ARM 4.82 1-yr ARM 4.82

Jul 02, 2009
30-yr 5.32 15-yr 4.77 5-yr ARM 4.88 1-yr ARM 4.94

Jun 25, 2009
30-yr 5.42 15-yr 4.87 5-yr ARM 4.99 1-yr ARM 4.93

Jun 18, 2009
30-yr 5.38 15-yr 4.89 5-yr ARM 4.97 1-yr ARM 4.95

Jun 11, 2009
30-yr 5.59 15-yr 5.06 5-yr ARM 5.17 1-yr ARM 5.04

Dec 31, 2008
30-yr 5.10 15-yr 4.83 5-yr ARM 5.57 1-yr ARM 4.85

Mortgage rates are important but it’s also always good to look at actual mortgage payments. Using a mortgage calculator we took today’s rates and translated them into a mortgage payment on a 200k loan. We also did the same thing with rates from July 9th (last week) and from December 31 (6 months ago).

Jul 09
30-yr $1098.22
15-yr $1549.47
5-yr ARM $1051.74
1-yr ARM $1051.74

Jul 02
30-yr $1113.09
15-yr $1557.72
5-yr ARM $1059.02
1-yr ARM $1066.32

Dec 31
30-yr $1085.89
15-yr $1563.93
5-yr ARM $1144.37
1-yr ARM $1055.38

On a 200k house a mortgage payment is slightly higher ($12.32 or 1.13 percent) than it would have been 6 months ago. It’s interesting that people perceived rates to have been much lower back then. In December rates were at historic lows. But now, since rates bottomed out in April, people think rates are higher since they compare to the extraordinary low rates of April.

So why are rates dropping? There are a number of different factors but the economy seems to be weakening in the last few weeks. In fact the Dow Jones Industrial average hit its recent peak (8799) on June 12th and has fallen since then. The 30 year mortgage rate hit its peak around the same time June 11th and has fallen since then. It’s hard to know what will happen in the next few months but once the economy recovers it’s expected that mortgage rates will rise.

Ki lives in Austin Texas. He runs a site about the real estate market in Austin Texas http://www.escapesomewhere.com/ He also provides free mortgage rate widgets and mortgage calculator html.

Second Half of Year Should be Better

As the worst recession since World War II closes in on the two year mark, less people are losing their jobs, but unemployment is still rising. People who do have jobs are working fewer hours for less pay. According to the Associated Press, the national unemployment rate is 9.5 percent, the highest it’s been in 26 years. It’s predicted to hit 10 percent before the end of the year–a number President Obama hoped to avoid with his administration’s efforts to turn the economy around.

Layoffs have slowed down a bit across the country, but hiring has not picked up. While Federal Reserve Chairman Ben Bernanke has been predicting that the recession will end this year, economists predict that it will take years for the job market to recover. Companies and individuals are spending cautiously and saving at record rates.

The picture continues to be brighter for the Austin area, where jobs were added in May. According to the Austin-American Statesman, over 4000 jobs were added in May, mostly in government and a wide range of service jobs. Industries like construction and manufacturing continue to shed jobs, making the local unemployment rate 6.1 percent. While this is slightly higher than it was a year ago, it’s still well below the national average and even below the Texas average of 7.1 percent. The Austin real estate market also seems to be showing signs of improvement with seasonally adjusted sales improving since December

“Layoffs seem to have leveled off in the area,” Alan Miller, executive director of Workforce Solutions-Capital Area, told the Statesman. However, the job market remains competitive with new graduates and those looking for seasonal work.

While jobs are one measure of the economy’s health, consumer confidence is another. The official Consumer Confidence Index comprises two parts, as explained by the Associated Press recently. There is the Present Situation index measuring how shoppers feel about the economy. Then there is the Expectations index, which looks at shoppers’ outlook for the next six months. Overall, consumer confidence is far below what is considered normal, with the Present Situation Index showing the larger decline.

What this means is that the Consumer Confidence index that is hovering in the 50s to 60s is nowhere near the number of 90 that indicates a healthy economy. However, the number has gone steadily up since its low mark in February. But analysts predict that this recession, much like the Great Depression, will markedly change consumer spending habits for years to come. While spending a little wiser and saving for a rainy day are not necessarily bad things, it does mean that getting the economy back on track is going to take some time.

Austin is fortunate to have a wide base of job sectors, from the universities to the state capital to the tech jobs. Austinites may be tightening the purse strings a little; fortunately it is faring far better than some of the harder hit areas of the country.

Ki is a real estate agent in Central Texas. His site is devoted to Austin real estate. It allows future buyers to search listings on the Austin MLS. He also keeps a blog with information and updated statistics on the Austin Texas real estate market.

US Home Sales Rise

In a sign that the recession might be easing US homes sales (which lies at the root of the current recession) rose 2.4 percent in May. This is the second month in a row and the third time in the last 4 months to see a rise in home sales. While its too soon to call an end to the US housing woes this is certainly beginning to look like a trend. If sales continue to move upwards we would mark January 2009 as the nadir of the housing downturn.

The rise in home sales was not evenly distributed across the US. In fact a large percentage of the rise this month occured in the Midwest which saw a rise of 9% increase in the last month. The Northeast saw a rise of 3.9 percent. The South held even and the West saw a drop of .9% percent.

While this is an improvement we are nowhere near where we were 3 or 4 years ago and in fact we are still seeing 3.6 less sales than what we saw a year ago. And we should remember that May 2008 was certainly a down market. So in summary we are still in the midst of a poor real estate market but we are beginning to see positive signs.

Year Month Seasonally Adjusted Sales (Annual) Sales (Non Adjusted) Inventory Months of Inventory
2008 May 4,950,000 483,000 4,482,000 10.9
2008 Jun 4,900,000 504,000 4,495,000 11.0
2008 Jul 4,990,000 504,000 4,575,000 11.0
2008 Aug 4,930,000 489,000 4,335,000 10.6
2008 Sept 5,100,000 438,000 4,272,000 10.1
2008 Oct 4,940,000 413,000 4,198,000 10.2
2008 Nov 4,540,000 322,000 4,163,000 11.0
2008 Dec 4,740,000 361,000 3,700,000 9.4
2009 Jan 4,490,000 257,000 3,611,000 9.7
2009 Feb 4,710,000 280,000 3,798,000 9.7
2009 Mar 4,550,000 357,000 3,648,000 9.6
2009 Apr 4,660,000 413,000 3,937,000 10.1
2009 May 4,770,000 451,000 3,798,000 9.6
vs. last month: 2.4% 9.2% -3.5% -5.0%
vs. last year: -3.6% -6.6% -15.3% -11.9%

This month saw the number of single family homes on the market drop by 3.5% This is significant because usually inventory levels rise in the summer. Unlike the home sales numbers the inventory levels are improved from what we saw this time last year. May 2009 saw 3,798,000 homes on the market compared to 4,482,000 in May 2008 for a drop of 15.3 percent. Typically when a market starts to improve we will see a drop in inventory before we see a rise in sales which is what we are currently seeing.

So after painting a somewhat rosey picture for the US real estate market is there anything that could knock us off course? Yes. Much of the recent rise in home sales can be attributed to extremely low mortgage rates. While mortgage rates have rise in the last two months they still remain near historic lows. If mortgage rates start to rise it will without a doubt have a negative impact on sales. The effects of a rise of 1 to 1.5 points could be overcome and the real estate market could continue to improve. But some have predicted that the US is . This is basically caused by the fact that the US is now borrowing 50 cents for every dollar it spends. The effects of hyperinflation on real estate could be extremely negative. If mortgage rates were to rise above 10 percent its hard to see how the US or for that matter the world real estate market could continue to improve. It will at the least lead to a flood of foreclosures as people with adjustable rate mortgages see their rates rise from 6% to 11% and consequently their mortgage payments almost double. This is why the Obama administration has said they are working to stop hyperinflation before it happens. The question remains whether they can be successful.

So for now it looks like the housing market is seeing a light at the end of the tunnel. It remains to be determined whether the train will escape the tunnel before it collapses.

Ki works as a realtor in Austin. His site has information on Austin Texas Real Estate and Round Rock Texas real estate along with the neighborhood of Lost Creek Austin

Mortgage Rates Fall Again

Mortgage Rates fell this week with the 30 year rate dropping from 5.42 to 5.32. They have fallen .27 points from their recent high of 5.59 reached on June 11, 2009. Rates are still up from the all time low of 4.78 they reached on April 30, 2009. Except for the 1 year arm the other major rates dropped as well. The 15 year fixed rate dropped from 4.87 to 4.77 and the 5 year arm dropped from 4.99 to 4.88. The one year arm rose slightly from 4.93 to 4.94. Below are rates for the last few weeks.

Jul 02, 2009
30-yr 5.32 15-yr 4.77 5-yr ARM 4.88 1-yr ARM 4.94

Jun 25, 2009
30-yr 5.42 15-yr 4.87 5-yr ARM 4.99 1-yr ARM 4.93

Jun 18, 2009
30-yr 5.38 15-yr 4.89 5-yr ARM 4.97 1-yr ARM 4.95

Jun 11, 2009
30-yr 5.59 15-yr 5.06 5-yr ARM 5.17 1-yr ARM 5.04

Jun 04, 2009
30-yr 5.29 15-yr 4.79 5-yr ARM 4.85 1-yr ARM 4.81

Dec 31, 2008
30-yr 5.10 15-yr 4.83 5-yr ARM 5.57 1-yr ARM 4.85

In addition to rates we also like to analyze mortgage payments. Using our free mortgage calculator we took today’s mortgage rates and translated them into a mortgage payment for a 200k loan. We did the same thing with rates from June 25, 2009 and December 31, 2008 (6 months ago).

Jul 02
30-yr $1113.09
15-yr $1557.72
5-yr ARM $1059.02
1-yr ARM $1066.32

Jun 25
30-yr $1125.55
15-yr $1568.07
5-yr ARM $1072.42
1-yr ARM $1065.1

Dec 31
30-yr $1085.89
15-yr $1563.93
5-yr ARM $1144.37
1-yr ARM $1055.38

While a potential mortgage payment is down from last week it is up $27.20 (2.5 percent) from 6 months ago.

Although rates are low it’s important to note that loans are not freely available. Banks are still extremely strict on the properties and individuals that will receive loans. For instance loans for non warrantable condos (where 50% or more of the units are rented instead of owner occupied) have pretty much disappeared. The credit scores thresholds needed for a loan have increased as well. So although mortgage rates are near historic lows the lending industry continues to be the biggest negative factor dragging on the real estate market.
So what do we expect to see moving forward? There is a huge upward pressure on mortgage rates because of the amount of borrowing the US government has engaged in over the last year. So while it’s hard to know what is going to happen over the next month we should see higher mortgage rates in the next year. Since rates are going to be higher this is a good reason to avoid the 1 year arm since by the time the arm expires rates could be over 8 percent.

More importantly is whether the lending industry will ease up on some of the current mortgage restrictions. While when the market finally improves it’s assumed some lending restrictions will disappear but it’s doubtful that lending restrictions will ease up before then.

Ki lives in Austin Texas. His site provides a mortgage widget along with a free mortgage calculator. It also has a search for Austin Tx real estate.